14 Reasons an S-Corp is the Best Structure for Your Small Business
Post #52: Keep more of your hard-earned money.
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Did you know…?
The S-Corporation has become the dominant business structure in the United States. The number of businesses classified as an S-Corp increased by 839% between 1980 and 2021, growing from about 545,400 to over 5.1 million. (source)
In this newsletter, I’ll cover the top 14 reasons why you should structure your business as an S-Corp if you are earning more than $50k annually in gross revenues.
Operating as a sole proprietor or single-member LLC can leave you paying unnecessary taxes and missing out on key financial benefits.
By converting to an S-Corp, you can:
Significantly reduce your tax burden,
Keep more of your hard-earned money, and
Gain more flexibility than a traditional W-2 job.
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What Is an S-Corp?
An S-Corporation (S-Corp) is a special tax designation that allows business owners to avoid double taxation while also benefiting from reduced self-employment taxes.
Unlike a C-Corporation, an S-Corp doesn’t pay corporate taxes. Instead, profits flow directly to the owners and are only taxed at the personal level.
It also allows business owners to take a salary and distributions, which can create major tax savings.
Get this step-by-step guide on how to set up your S-Corp:
Here are 14 reasons why switching to an S-Corp is one of the smartest financial moves you can make as a business owner:
1. Pay Less for Self-Employment Taxes
As an S-Corp owner, you only pay self-employment taxes on your salary — not on your business profits.
Any earnings above your salary are taxed at a lower rate as dividends, reducing what you owe to the IRS.
For example, if your business earns $100K, you could set your salary at $50K and take the rest as distributions, lowering your payroll tax burden.
2. Avoid Double Taxation on Profits
With an S-Corp, your business doesn’t pay corporate income tax.
Instead, profits pass directly to you and are taxed only once on your personal return.
This is a huge advantage over C-Corps, which get taxed at both the corporate and personal levels.
3. Protect Your Personal Assets
An S-Corp keeps your business legally separate from your personal finances.
If your business faces lawsuits or debt, your personal home, savings, and car are generally protected.
Without this separation, creditors could come after your personal property.
4. Deduct Your Health Insurance Premiums
As an S-Corp owner, you can deduct the cost of your health insurance from your business income — something sole proprietors and LLCs don’t always get to do.
This can add up to thousands of dollars in tax savings each year.
5. Have Flexibility with Payroll Taxes
Unlike sole proprietors who pay self-employment taxes on everything, S-Corp owners can choose a reasonable salary and take the rest as distributions, which aren’t subject to payroll taxes.
This gives you more control over how much you pay in taxes each year.
6. Reduce Your Risk of an IRS Audit
Sole proprietors and single-member LLCs get audited far more often than S-Corps.
The IRS tends to scrutinize businesses that file Schedule C, but an S-Corp files a separate tax return, making audits less common.
7. Shift Income to Family Members
If your spouse or kids help with your business, you can pay them a reasonable salary, which could lower your overall household tax bill.
Plus, paying a child under 18 can be tax-efficient, as they may fall into a lower tax bracket.
8. Supercharge Your Retirement Savings
With an S-Corp, you can contribute more to tax-advantaged retirement accounts like a Solo 401(k) or SEP IRA.
Because you’re an employee of your own business, you can contribute both as an employer and an employee, boosting your savings potential.
9. Deduct Business Losses from Personal Income
If your business has a slow year and reports a loss, you can use that loss to reduce your personal taxable income.
This can help offset other earnings, lowering your total tax bill.
10. Boost Your Business Credibility
Being an S-Corp makes your business look more established and professional.
It signals to clients, banks, and investors that you’re serious, which can help you land bigger contracts and secure funding.
11. Save Money on State Taxes (in Some States)
Some states tax S-Corps at a lower rate than LLCs or sole proprietorships.
If you live in a high-tax state, this can mean significant savings over time.
12. Sell Your Business Shares Easily
If you ever want to bring on a partner or sell part of your company, S-Corps make it simple by allowing ownership through stock shares.
This is much easier than restructuring an LLC or sole proprietorship.
13. Make Ownership Transfers Painless
Unlike LLCs, which require complicated agreements, S-Corps make it easier to change owners without disrupting business operations.
This is especially helpful if you plan to bring in investors or eventually sell the business.
14. Attract Investors More Easily
Investors are more comfortable putting money into an S-Corp than an LLC because it offers a familiar stock structure.
If you plan to raise capital, an S-Corp can make your business more attractive.
Learn more about LLCs and S-Corps:
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If you're serious about growing your business and keeping more of your hard-earned money, switching to an S-Corp is a no-brainer.
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You don’t need to hire an expensive service to do this for you — I have tons of articles that will walk you through every step of bootstrapping your new business.
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